Bitcoin confronts a risk of “liquidity depletion” as Japan’s three-decade yield hits a new high.

Tokyo bond traders have a new figure etched into their screens this week: 3.5%.

For much of the last twenty years, Japan’s long end was where the globe turned to escape interest rates. If you were a pension fund aiming to align liabilities, a bank seeking to place liquidity, or a global macro desk searching for inexpensive funding, Japanese government bonds represented a calm corner of the room.

That corner is becoming noisy.

The yield on Japan’s 30-year government bond has climbed to approximately 3.5%, a rate that would have seemed ludicrous during the years when “Japan” and “near zero” were effectively synonymous. TradingEconomics illustrates this increase as a new upward movement in early January, following a year of consistent pressure building at the long end.

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If you exclusively trade Bitcoin, you might be inclined to bypass a Japanese bond chart and return to the candles. The issue is that Japan is not just another nation’s bond market. Japan has been a cornerstone supporting the entire global price of capital.

When that cornerstone shifts, the ripples spread, and Bitcoin is now integrated into the same global risk framework as everything else.

The Japan shift that is significant for crypto

Japan is moving away from an era that influenced a generation of markets, characterized by cheap funding, plentiful central bank liquidity, and the belief that rates would remain anchored indefinitely.

The Bank of Japan has increased its short-term policy rate to 0.75%, with officials publicly indicating that they can continue tightening if the economy and prices align with their forecasts.

Reuters reported that Governor Kazuo Ueda reaffirmed that trajectory this week, and the BOJ has scheduled its next meeting for January 22 to 23, a date of significance far beyond Tokyo.

The more significant indicator is liquidity.

Japan’s monetary base, a straightforward way to gauge the amount of BOJ cash circulating, decreased by 4.9% year-on-year in 2025, with December seeing a drop of 9.8% to about ¥594.19 trillion, marking the first decline below ¥600 trillion since 2020. The BOJ publishes this underlying series under the Monetary Base.

This can be viewed as Japan distancing itself from its role as the world’s most dependable source of inexpensive liquidity.

Bitcoin is concerned about that role, even when the daily correlation appears chaotic.

The way Japan impacts Bitcoin, the infrastructure first

Crypto narratives tend to spread quickly, such as inflation hedge, digital gold, store of value, rebel asset. However, the market infrastructure travels even faster.

There are three pathways through which Japan’s increasing long yields can affect Bitcoin. None of these require a Japan-specific crypto narrative. They necessitate Bitcoin to behave like a liquid, global risk asset in a world saturated with leverage.

The yen funding channel, carry trades unwind, leverage is reduced

For many years, the yen served as a funding currency. Borrow yen at low rates, invest in something with higher yields, layer on leverage, and repeat. When Japanese yields rise, and the yen begins to move unfavorably, that structure becomes uncomfortable. Uncomfortable leverage is then diminished.

The most recent clear example comes from the BIS, which analyzed market turbulence and the unwinding of the carry trade in August 2024. The BIS noted how deleveraging and margin pressures intensified volatility, providing a rough estimate of around ¥40 trillion ($250 billion) linked to the event.

You don’t need to accept an exact figure. The key point is the mechanism; when yen-related trades unwind, they can impact multiple asset classes simultaneously.

Bitcoin is now part of that ecosystem. A significant portion of BTC volume consists of derivatives, leverage is inherent in the market structure, and the asset trades continuously. When macro desks de-risk, crypto is often included on the list because it can be liquidated instantly.

The term premium channel, elevated long rates increase the global price of risk

Japan’s actions are also important because they can influence global term premia, and Japanese institutions are substantial holders of foreign assets. If domestic yields become competitive, the motivation to hold foreign duration alters at the margins.

You can observe the global context in the United States, where the 30-year Treasury yield remains high.

Elevated long-end yields tighten financial conditions. This pressure tends to affect assets that rely on ample liquidity, easy leverage, and positive discount rates. Bitcoin often fits into that category during tightening phases, even if the narrative people tell themselves is centered on something different.

The IMF has been clear about the risks here. Its Global Financial Stability Report highlighted the combination of stretched valuations, increasing pressure in sovereign bond markets, and the rising role of nonbank financial institutions. When long-end sovereign markets fluctuate, the stress can propagate through funds, margin, and collateral.

The fiscal trust channel, bonds fluctuate, the Bitcoin narrative amplifies

There is a secondary effect that can bolster Bitcoin, originating from a different emotion: trust.

When yields on long-dated government bonds soar, markets begin to discuss fiscal sustainability, debt servicing costs, and who will purchase the supply. The Invesco note on Japan’s increasing yields contextualizes the shift through fiscal concerns and altering market dynamics, with the BOJ’s changing presence in the bond market as a backdrop.

This type of discussion can gradually steer some investors toward Bitcoin, particularly those who already see sovereign debt as a long-term issue. Timing is the challenge. In the short term, a chaotic bond movement typically impacts risk appetite first, and the narrative second.

The near-term scenario, three potential paths from here

To grasp what Japan’s 3.5% long end signifies for Bitcoin, the most straightforward approach is to consider scenarios and then monitor for signals.

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Scenario one, the steady climb

Yields continue to rise, auctions clear, the yen remains relatively stable, and the BOJ maintains a gradual exit strategy. This could still pose a challenge for Bitcoin, primarily through the slow tightening of global financial conditions and the consistent reminder that the era of easy money has ended.

In this scenario, BTC could still surge; crypto can always discover its own catalyst, but the macro winds are blowing against it.

Scenario two, the chaotic spike.

Long-end yields leap sharply, demand appears shaky, the yen strengthens rapidly, and volatility surges across markets. This is the situation where the yen funding channel exerts its greatest pressure.

The BIS account from August 2024 serves as the model. Deleveraging combined with margin and cross-asset positioning can trigger rapid cascades. Bitcoin is likely to suffer in this case due to its liquidity and continuous trading. It also tends to reveal stress early because it lacks a closing bell.

Scenario three, the BOJ hesitates

If yields rise too swiftly, the BOJ might adjust its stance, slow down normalization, or find methods to stabilize the long end. This would be significant because it would be interpreted as a liquidity-relief signal, and markets react to expectations.

The catalyst for this scenario is not a Bitcoin headline; the BOJ’s reaction function, the terminology used, the pace of balance sheet reduction, and how officials discuss financial conditions are all important leading up to the January 22 to 23 meeting.

The straightforward dashboard, if you want to monitor this like a crypto trade

You don’t need a PhD in interest rates to observe the relevant variables.

Begin with the yen and the long end, then include a flow gauge.

• USD/JPY fluctuations, a swift yen rally serves as a warning signal for carry stress, with Reuters tracking the yen around 157 per dollar as markets price in tightening risk.
• Japan 30-year yield, monitor it on MarketWatch or Investing.com.
• Japan’s cross-border securities flows, the Ministry of Finance provides weekly data under International Transactions in Securities, offering one of the best real-time insights into whether Japan is acquiring foreign assets or bringing money back home.

If these three start moving in unison—yen up, long end yields up, repatriation flows up—you should assume global risk is about to be affected, and Bitcoin will be within the impact zone.

The Bitcoin perspective that continues to surprise people

One additional twist here.

Bitcoin does not always respond to macro news in the straightforward manner people anticipate. In 2023, the New York Fed’s paper The Bitcoin Macro Disconnect found that, at intraday intervals, Bitcoin can appear oddly “orthogonal” to typical macroeconomic news surprises.

This is significant because it maintains traders’ overconfidence; they observe a rate change, Bitcoin remains unresponsive, and they assume the macro channel is malfunctioning.

Subsequently, volatility emerges through positioning, leverage, and collateral, and the move manifests all at once.

Japan’s 3.5% long end serves as a reminder that the world is transforming beneath the surface. Japan is stepping away from zero, the BOJ is diminishing its presence, liquidity is receding in the data, and bond yields are rekindling fiscal discussions.

Bitcoin is downstream of all this.

The next time you encounter a Japanese bond chart, consider it like weather. You don’t need to grasp every detail of its formation; you just need to recognize when a storm is brewing and whether you are holding too much leverage when it strikes.

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